IMF Approves Second STF Drawing for the Republic of Belarus

The International Monetary Fund (IMF) has approved a second drawing under the systemic transformation facility (STF)1 for the Republic of Belarus, equivalent to SDR 70.1 million (about US$103 million) to support the Government's 1995 economic reform program. The first disbursement under the STF, also SDR 70.1 million, was approved on July 28, 1993 (see Press Release No. 93/31).

Background

Since independence, Belarus has adopted a cautious approach to economic reform, which has achieved neither the maintenance of economic activity and standards of living nor price stability. Although the progress of reforms since the IMF approved the first STF drawing has been slow, many elements of a comprehensive reform program were approved by Parliament in October 1994. While real GDP contracted by 21.5 percent in 1994, industrial production in the last quarter of the year is reported to have been at about the level of a year earlier. Reflecting excessive credit expansion, monthly consumer price inflation was 31.3 percent in December. The overall budgetary performance was, however, significantly better than expected, owing to higher revenues and savings in outlays, made necessary by the lack of external financing. Nevertheless, the 1994 external current account deficit widened to 11.6 percent of GDP as prices paid by Belarus for its energy imports moved towards international levels.

The 1995 Program

Building on the recent positive policy changes, the Government's main objectives for the 1995 economic program are to stabilize the economy by reducing the monthly rate of inflation to 1 percent by the year-end; narrow the external current account to 5.7 percent of GDP; and make decisive steps towards creating a market economy. Budgetary policy will contribute to the stabilization effort by limiting the fiscal deficit to about 3 percent of GDP and domestic financing of the deficit to no more than 2 percent of GDP. Given the goal of reducing inflation and the existence of external financing constraints, the authorities will pursue a tight monetary policy by limiting the expansion in base money and bank credit, and by maintaining positive real interest rates. Although the authorities' program was designed to meet the requirements for a stand-by credit, consideration of a request for a stand-by has been delayed by a lack of external financing.

Structural Reforms

Price liberalization, and adjustment of remaining administered prices for utility services, are a critical element of the authorities' reform program. Food prices are to reflect market forces and domestic energy prices their full import costs. Remaining impediments to the full unification of the foreign exchange market have been removed, and barriers to exports lifted. Credit allocation is to be made increasingly on market terms. Privatization will be accelerated and will focus on both small and large state enterprises.

Addressing Social Costs

The Government intends to continue financing an adequate social safety net to shield vulnerable groups of the population against the impact of price liberalization.

The Challenge Ahead

The program, if fully implemented, should make a decisive contribution to stabilizing the Belarussian economy and reforming it along market lines. A substantial curtailment in external financing could, however, seriously jeopardize the program's objectives and excessively delay the outcome of tangible improvements in the Belarussian economy.

The Republic of Belarus joined the IMF on July 10, 1992; its quota2 is SDR 280.4 million (about US$ 413 million), and its outstanding use of IMF credit currently totals SDR 70.1 million (about US$ 103 million).

Republic of Belarus: Selected Economic Indicators

1993

1994

1995*

(percent change)

Real GDP

–9.5

–21.5

–7.0

Monthly consumer price inflation
(end of period)

46

31

1

(percent of GDP)

External current account balance (deficit –)

–7.2

–11.6

–5.7

Fiscal balance (deficit –)

–8.3

–1.5

–3.2

Sources: Belarussian authorities; and IMF staff estimates.
*Program.1. The STF is a temporary IMF lending window that provides financial assistance to member countries that are facing balance of payments difficulties arising from severe disruptions to their trade and payments arrangements due to a shift from a significant reliance on trading at nonmarket prices to a multilateral, market-based trading system.2. A member's quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its share in the allocation of SDRs.